Horizontal Logistics
Suppliers’ Perception on Horizontal VMI
Collaborations in the Dutch Fresh Food Sector
Master Thesis, MSc Technology & Operations Management
University of Groningen, Faculty of Economics and Business
August 13
th, 2015
Written by
Roger Philip van Griethuysen
Supervisor: Prof.Dr.Ir. H. Wortmann
Abstract
Introduction: This Research is part of a bigger project called “SLIFF” (Sustainable Logistics In
Fresh Food). The project aims at maximizing shelf life, minimizing transportation costs and taking into account the environmental impact of transportation. An initiative that is being investigated is combining truckloads of different suppliers and sharing distribution center spacing in VMI collaborations. It is an example of horizontal collaborative initiatives, which are collaborations between organizations active in the same level of the supply chain. This thesis focuses on the perspective of suppliers on these horizontal VMI collaborations.
Method: By doing a literature review drivers and barriers have been collected and categorized.
Besides the drivers and barriers, facilitators have been collected. These drivers, barriers and facilitators have been tested by doing interviews with suppliers of a Dutch retailer. The interviewees were asked to provide their perspective on the driver, barrier and facilitator categories. Next to the perspective of the suppliers, a conceptualization of the Dutch fresh foods sector is generated from the interviews to support the suppliers’ choices.
Results: Dutch fresh food sector: the initiated collaborations in the Dutch fresh food sector are
different per supplier. The suppliers of fast movers have a dedicated VMI collaboration with the retailer. The slow mover suppliers have RMI and FGP collaborations with the retailers. All bigger retailers shared demand forecasts and replenishment planning through CPFR. Transportation
for all of the suppliers is done by LSPs.
Drivers: The main driver for horizontal collaborative initiatives is the positive effect it could have on the whole supply chain, such as improved service quality towards the retailers due to more
frequent replenishment and truckload sharing.
Barriers: Suppliers were mixed in their perspective on the barriers. Suppliers currently working with VMI, attached a lot of value on control over their processes and do not want to be dependent on others. As for suppliers of slow movers there were not many barriers, they only did not have the capabilities to organize a horizontal VMI collaboration themselves. Facilitators: Considering the facilitators the suppliers were more homogeneous, they all agreed on the categories: similarities, expectations and agreements. Another important facilitator for
suppliers is external coordination.
Discussion: There was a clear distinction in the results between the suppliers of slow movers
Index
INDEX ... 41.
INTRODUCTION ... 7
2.
RESEARCH DESIGN ... 9
PROBLEM ANALYSIS ... 9 2.1.
RESEARCH OBJECTIVE ... 10 2.2.
METHODOLOGY ... 11 2.3.
Literature review ... 11 2.3.1.
Interview ... 12 2.3.2.
Data analysis ... 12 2.3.3.
Written record ... 13 2.3.4.
Methodological Discussion ... 13 2.3.5. 3.
THEORETICAL BACKGROUND ... 15
FRESH FOOD LOGISTICS ... 15
3.1.
HORIZONTAL COLLABORATIVE INITIATIVES ... 18
3.2.
DRIVERS, BARRIERS AND FACILITATORS ... 20
8.
RECOMMENDATION & LIMITATIONS ... 41
RECOMMENDATIONS ... 41 8.1.
LIMITATIONS ... 41 8.2. 9.
REFERENCES ... 43
10.
APPENDIX ... 46
APPENDIX I: INTERVIEW STRUCTURE ... 46
APPENDIX II: INTERVIEW STRUCTURE ELABORATED ... 47
APPENDIX III: INTERVIEW PROTOCOL ... 48
APPENDIX IV: LITERATURE REVIEW ... 49
Drivers ... 49
Barriers ... 50
Facilitator ... 51
APPENDIX V: INTERVIEW CODING ... 54
Drivers ... 54
Barriers ... 55
Facilitators ... 58
Preface:
This research is my final project for my Master in Technology and Operations Management at the University of Groningen. The goal of this research was to improve insight on horizontal collaborative initiatives, by looking at the perspectives of suppliers. The results of this research could be used to come to new ideas for other research and simulations in the future.
By doing this research I have learned much about the logistic function of grocery retailing in the last three months. It was very interesting to see how practice and literature can differ. On the other side, it was also interesting to see how some initiatives in literature were initiated in practice.
I would like to thank the retailers for their cooperation and the contacts of their suppliers. These contacts were very helpful. With that I would like to thank the suppliers who I have interviewed. The insights on their organization as well as their perspectives on the drivers, barriers and facilitators were extremely important for my research.
I also would like to thank the other students and supervisors who were in the same project groups. All meetings, but especially the moments of feedback, were very helpful and helped me out numerous times.
Finally, I would like to thank my supervisor for the feedback moments we had. After these moments I was able to continue with the research. This made me more motivated to work on the report.
1. Introduction
For decades, there have been different kinds of studies and practices on partnerships between retailers, suppliers and their logistic service suppliers in the fresh food grocery retailing. The aim of these initiatives is to reduce lead-‐time and optimize inventory replenishment. Some of the most widely discussed collaborative initiatives are vendor managed inventory (VMI) and factory gate pricing (FGP). In VMI the supplier is responsible for the management of the inventory control and replenishment of the retailers’ DC (Cheng et al., 2012). On the other hand, there is FGP, where the retailer is responsible for the transportation and insurance of the products from the supplier to the DC (Le Blanc et al., 2006). These are vertical collaborations, but current research has moved towards horizontal collaborative initiatives between complimentary players and even competitors; examples are combined transportation or even shared inventory (Mason, Lalwani, & Boughton, 2007).
This research specifically focuses on the Dutch fresh food sector, where vertical collaborative initiatives are widely integrated. The logistic function is, for a large share, executed by the Logistic Service Providers (LSPs). The producers of fast movers are particularly involved in VMI collaborations and the suppliers of slow movers in FGP or classic retail managed inventory (RMI) (Le Blanc et al., 2006). Despite the relatively small distances between suppliers and DCs, the amount of transport kilometres sums up to 864 million per year (Scheer et al., 2011). The Dutch fresh food sector consists of 1145 suppliers1, which can be suppliers of just one product or suppliers of multiple products. These products are produced for the 3060 supermarkets2 in the Netherlands. These supermarkets are for 99.5%3 owned by the largest grocery retailers in the Netherlands (AH, Jumbo, Superunie, Lidl, Aldi). The largest share of the products is transported from the suppliers to the retailers’ DCs.
primary distribution function (Waller et al., 1999). Examples of supplier collaborations are sharing truck and warehouse spacing, to improve truck utilization and inventory control (Pomponi et al. 2015).
This research takes a look at the perspective of suppliers on horizontal VMI collaboration initiatives between vendors in the Dutch fresh food sector. In VMI, frequent replenishment to keep the inventory level low is one of the main concerns. As for fresh foods it is important to take into account the freshness of products. So a fast flow of products between supplier and the final retail market is of top concern.
2. Research design
This research has followed the 5 steps for qualitative research. Myers (2013) defined 5 steps for performing a qualitative research (Figure 2.1). Step 1 is defined in subsection 2.1, step 2 in subsection 2.2 and step 3,4 and 5 in subsection 2.3.
Problem analysis
2.1.
This research is part of a larger project called: SLIFF (Sustainable Logistics in Fresh Foods). This project aims at maximizing shelf life, minimizing supply chain costs and taking into account environmental impact. The specific focus is on the optimization of the utilization of the logistic resources and reducing the distribution lead-‐time of fresh food. The project is initiated by the “Nederlandse organisatie voor Wetenschappelijk Onderzoek” NWO and a Dutch grocery retailer. This Dutch retailer is building a new DC and
searching for different distribution initiatives with their suppliers and logistic service providers to optimize their fresh food logistics. The idea is that the inventory of the DC is managed by VMI with consignment stock, meaning that the suppliers (vendors) are responsible for replenishment and inventory control. Due to the short shelf life, products need to be replenished frequently, which means that suppliers of slow movers (in this research slow movers are suppliers which cannot fill truck loads) should drive very frequently replenish inventory. This frequent replenishment to keep inventory low will lead to LTF trucks leading to unwanted transport costs (Sohel Rana et al., 2015). This is less of a problem for fast movers since they often have full trucks. In consignment stock suppliers rent DC space, and they are owner of the product until it leaves the DC. For the suppliers this could mean that they have to rent DC space which, in order to cope with demand variability, they often do not need (Sohel Rana et al., 2015). This has an impact on slow movers but especially on suppliers of fast movers where demand variability is larger (Zavanella & Zanoni, 2009).
Horizontal collaborative initiatives could be the solution to optimize the VMI initiatives to keep the replenishment frequency high and inventory low, without having unwanted costs. Horizontal collaborations aim at a win-‐win situation among two or more firms operating at the same level of the supply chain, notwithstanding whether they are competitors or not, and similar or different in terms of size (Lozano et al., 2013). Examples of collaborative initiatives between suppliers could be the sharing of truck spacing, such that they can replenish frequently
without driving with LTF trucks. Especially for suppliers of slow movers this could be beneficial. In VMI with consignment stock, suppliers could share warehouse spacing at the DC of the retailer, which could make it easier to cope with demand variability.
But not much research has yet been done on horizontal collaborative initiatives between suppliers. Previous research has mainly focused on initiatives between LSPs. An example of this is the study of Cruijssen et al. (2007a) on the drivers, barriers and facilitators of the LSPs on horizontal initiatives. Literature is currently focusing more towards the suppliers (Cruijssen, 2012).
Research Objective
2.2.
In VMI it is the suppliers (vendors) who are responsible for the primary distribution and inventory management, implying that their perspective on horizontal initiatives are very important. Current research already focused specifically on LSP initiatives. A study on vertical collaborations between suppliers and retailers of Nyaga et al. (2010) has shown that there are similarities in perspectives on collaborative relationships between parties in the supply chain, but it has also shown that there were some significant differences in perspectives. This is why the perspective of the supplier on horizontal collaborative initiatives needs attention.
The main objective of this research is to take a closer look at the perspective of suppliers on horizontal VMI collaborative initiatives in the Dutch fresh food sector. Drivers describe what could motivate, and barriers what would withhold suppliers to participate in a horizontal VMI initiative. Furthermore, facilitators will show what suppliers think they need, in order to participate in a horizontal initiative. The area of focus is the Dutch fresh food sector, so before the perspectives of the suppliers on horizontal collaborative initiatives can be defined it is important to give a conceptualization of current collaborative initiatives in the Dutch fresh food sector. In this way the choices of suppliers on the perspectives can be better supported.
The main research question is:
RQ: How do suppliers perceive horizontal VMI collaborative initiatives with each other, and the
collaborations between their Logistic Service Providers in the Dutch fresh food sector, and how do they see the future of horizontal VMI collaborative initiatives?
• SQ4: What are the drivers of horizontal collaborative initiatives for suppliers in the Dutch fresh food sector?
• SQ5: What are the barriers of horizontal collaborative initiatives for suppliers in the Dutch fresh food sector?
• SQ6: What are the facilitators of horizontal collaborative initiatives in the Dutch fresh food sector?
SQ1-‐SQ3 are elaborated in section 3. SQ4-‐SQ6 are elaborated in section 5.
To get an answer to the research question, the drivers, barriers and facilitators have been identified by means of a literature review. Drivers, barriers and facilitators are categorized and discussed in interviews with fresh food suppliers of the Dutch retailer (see section 2.3).
Methodology
2.3.
In the literature review, information has been collected on horizontal collaborative initiatives between suppliers. Drivers, barriers and facilitators have been designed from the perspective of suppliers by means of collected articles. To see whether these drivers, barriers and facilitators hold in practice, interviews have been conducted with suppliers of the Dutch retailer on their perspective on horizontal VMI collaborations. Next to the perception of the suppliers, the interviews were also used to find out what collaborative initiatives are generalized in the Dutch fresh food sector.
Literature review
2.3.1.
To start with the literature review, relevant literature was sought after. Some important keywords for searching relevant articles are:
• Fresh food logistics • Vertical collaboration • Horizontal collaboration • Retail Logistics
• Horizontal logistics • Suppliers perspective
Relevant articles have been tracked back-‐and-‐forward. Backtracking has been done by looking at the reference lists of the articles. Forward tracking has been done by looking for other articles that have cited the used article. With relevant literature 4 steps have been taken:
• Step 1: Note the “horizontal collaboration perspective” of the article.
• Step 2: Search for drivers, barriers and facilitators in the article and note them behind the article it has been found in. Note them exactly as they are written in the articles. • Step 3: Write drivers, barriers and facilitators in own words
• Step 4: Categorize the drivers, barriers and facilitators.
Interview
2.3.2.
In-‐depth interviews were used because they are useful for exploring new issues in depth (Boyce & Neale, 2006). The interviews were structured as semi-‐standardized interviews, to have a direction in the interview but to keep space for discussion and additional input.
The interviews were conducted with five fresh food suppliers of the Dutch retailer. These contacts were derived from a contact at their headquarters. The interviewed suppliers were a mix of small and medium sized suppliers, since they have most interest in horizontal collaborations. These suppliers have the biggest chance of lower truck utilization, so for them it would be most beneficial to share truck space. One of the suppliers is dedicated to the retailer, to see if there is a difference in perspective of suppliers who are dedicated to one retailer and suppliers who serve several retailers.
Interview structure
To get a line in the interview, a specific structure and protocol has been designed. Appendix I depicts the structure of the interview, Appendix II describes what has been discussed in the 4 parts of the interview and Appendix III depicts the protocol that has been followed during the interview.
Data analysis
2.3.3.
The drivers, barriers and facilitators collected from the literature review are documented in tables, accompanied by the references of the authors. The interviews are transcribed in total, and after transcription the text has been coded, to get to a theoretical contribution.
The interviews were recorded, and during the interviews some notes were made. After the interviews, the recorded conversations were transcribed completely, and sent to the interviewee for validation and to exclude misinterpretations (Yin, 2013).
discussed by the hand of the cards, the quotations of the suppliers on these pre-‐set codes could be easily filtered. Inductive coding was used to define drivers, barriers and facilitators, which were missing in the drivers, barriers and facilitators generated by the literature review. These insights were added to the pre-‐set codes afterwards.
To find categories for inductive coding, first was asked: • What are drivers for horizontal initiatives? • What are barriers for horizontal initiatives? • What are facilitators for horizontal initiatives?
These were categorized with the already existing categories from the literature review, or new categories were designed.
Written record
2.3.4.
At the end, when the information had been categorized, the theory was constructed (Miley, 2013). A conceptualization of the current collaborative initiatives between the logistic triads within the Dutch fresh food sector was generalized. The data on drivers, barriers and facilitators was compared with the theory of the literature review and after analysis of the interviews; the results were documented in the report. The results of the interviews were backed up with the theoretical background. From the results a report has been drawn up. This report has a theory building structure, which means that it has explanatory and exploratory purposes. Conclusions are drawn on the results of the report. Afterwards a draft of the report has been sent to all participants for validation (Yin, 2013).
Methodological Discussion
2.3.5.
This subsection describes the benefits and drawbacks of the methodology.
• The number of 5 interviewees was very low, due to the short time period the interviews needed to be planned. It could be the case that these 5 interviewees had a completely different opinion on logistics compared to the rest of the hundreds of suppliers in the Dutch fresh food sector. This made it hard to allow reliable methodological triangulation; more persons should have been interviewed (Farmer et al., 2006).
3. Theoretical Background
This chapter first gives an introduction on fresh food logistics in section 3.1. Section 3.2 elaborates on horizontal collaborative initiatives and section 3.3 gives an introduction of the drivers, barriers and facilitators on horizontal collaborative initiatives.
Fresh food logistics
3.1.
Logistics in grocery retailing ask for a different approach as compared to other non-‐food products. In grocery retailing you have to take into account the shelf life of the products, especially for fresh food groceries. Due to the demand variability, large product range, inventory costs and the shelf lives of the products, retailers focus on inventory reductions. This resulted in more frequent and smaller replenishment orders, which causes more transportation costs. In fast moving consumer goods stock has to be created, such that demand variability can be controlled. For slow movers it is important that inventory levels are kept low such that products are sold before expiration date (Ketzenberg & Ferguson, 2008).
Throughout the years several collaborative initiatives have been initiated to optimize the supply chain. Collaboration logistics is described as “two or more independent companies work jointly to plan and execute supply chain operations with greater success than when acting in isolation” (Simatupang & Sridharan, 2003). VMI and FGP are widely used collaborative initiatives in the primary distribution of fresh food grocer. Besides the logistic process, most of the planning is supported by collaborative planning, forecasting and requirements (CPFR), a web-‐based attempt to coordinate various activities and purchase planning, demand forecasting and inventory replenishment between supply chain trading partners (Fliedner, 2003).
reduction in costs (Yao et al., 2007). At the new DC of the Dutch retailer they will work with VMI. In this type of VMI the vendor is also responsible for the ownership of the products at the DC of the retailer. This is referred to as consignment stock (CS) (Zavanella & Zanoni, 2009). In CS the vendor holds total ownership of the products till it leaves the DC or in some cases till it has been sold in the supermarkets (Sohel Rana et al., 2015). For the retailer this is beneficial because in this way they reduce their inventory costs or even have no inventory costs at all. Besides the benefits there are also some downsides considering VMI with and without CS. For the retailers it means that they give away a part of their control on the logistic process. But especially for the suppliers it means a large increase in responsibility. Instead of only producing and maybe delivering their products, they are now asked to monitor and plan replenishments for the retailer themselves (Yao et al., 2007). Besides the cost reductions, which could be met by lowering the inventory levels, it will mean an increase in costs caused by the monitoring, implementation costs and for slow movers it will mean that they will have to transport LTF trucks (Sohel Rana et al., 2015). With CS the responsibility might even get bigger (Battini et al., 2010). Often suppliers do not have the capabilities and the resources for such an initiative as VMI. However, the vendor in VMI does not necessarily need to be a supplier, but it could also be a third-‐party (e.g. LSP), which manages the VMI for the supplier. A step further is that the collaboration is coordinated by a fourth-‐party (4PL) outsourcing the whole supply chain. The 4PL manages the entire logistic process, technology and service provision (Hingley et al., 2011).
Figure 3.1 Product ownership, collaborative initiatives
Next to VMI, a widely implemented logistic collaborative initiative between suppliers and retailers is FGP. FGP is in some sort the opposite of VMI, instead of moving the responsibility of
Vendor Retailer DC Selling points or RDC
Vendor Retailer DC Selling points or RDC FGP
VMI or RMI
Vendor Retailer DC Selling points or RDC VMI with
Consignment stock
Product ownership
the logistics to the supplier; the retailer is responsible for the logistic process, concerning the responsibility of the transport and the inventory control (Le Blanc et al., 2006). Figure 3.1 depicts the product ownership for the collaborative initiatives. Where in VMI with CS the ownership of the products is handed when trucks leave the gate at the DC of the retailer, for FGP this is at the factory gate of the supplier, also explaining the name “Factory Gate Pricing”. All costs made after the products leave the factory gate are for the retailer. Potter et al. (2007) have described 4 different techniques for FGP, for less than truck load (LTL) and full truck load (FTL) suppliers (Figure 3.2).
Figure 3.2 FGP transportation techniques (Potter et al., 2007)
frequencies, retailers can determine the timing of transport so being able to combine replenishment orders and the supply chain network can be more efficient (Le Blanc et al., 2006). The idea behind both VMI and FGP is to optimize the whole supply chain by smaller and more frequent replenishment orders, lower inventory resulting in lower inventory costs and faster flow through the supply chain. Both in VMI and FGP the control is brought for a bigger part under one supply chain entity, the supplier (vendor) in VMI and the retailer FGP. By bringing together the control of the primary distribution and inventory management cost savings can be generated (Le Blanc et al. 2006). VMI is mostly used when a retailer has a few large suppliers or the suppliers deliver a substantial volume. When there are hundreds of small suppliers it becomes unmanageable to handle all the trucks at the DC. In the case of hundreds of small suppliers, FGP is widely used. FGP overcomes the problem of unmanageable situations at the distribution centers (Le Blanc et al., 2006).
Horizontal collaborative initiatives
3.2.
VMI and FGP are both collaborative initiatives, which in first instance were initiated on the vertical line of the supply chain. But to further optimizing the supply chain, research is currently focusing on collaborative initiatives between companies operating at the same level of the supply chain, supplier-‐supplier, LSP-‐LSP or retailer-‐retailer collaborations. This is referred to as “horizontal collaboration” (Cruijssen et al., 2007a, Barrat, 2004). Companies participating in horizontal initiatives could be non-‐competitors but also competitors, as in the cooperation you work towards a shared goal (Figure 3.3). A previous study of Hingley et al. (2011) has shown that competition is still a great barrier for suppliers, retailers and LSPs to participate in horizontal collaborations in the UK, rather than focusing on collaborations so they can explore mutual benefits.
Figure 3.3 Collaboration partners (Barrat,
These horizontal collaborations can be just casual agreements between companies, but it could also be that all business processes of companies are completely being integrated. Lambert et al. (1999) has defined 3 levels of horizontal cooperation, based on the level of integration of the collaboration: Type I, Type II and Type III (Figure 3.4).
Figure 3.4 Horizontal cooperation types (Lambert et al., 1999)
at innovation and growth (Cruijssen et al., 2012, Pomponi et al., 2015).
Figure 3.5 Framework horizontal cooperation (Pomponi et al., 2015)
For strategic cooperation a well-‐established tactical cooperation is expected, and for a tactical cooperation a well-‐established operational cooperation is needed.
In grocery retailing these horizontal collaborative initiatives often come together with vertical collaborative initiatives. The combination of both is also called lateral collaboration (Hingley et al., 2011). For example in the VMI initiatives where the vendor is responsible for the primary distribution function, vendors could jointly distribute to the DCs. In this way the suppliers can frequently replenish at the DC and still keep a low inventory, and drive with full trucks, without having higher costs. In VMI with CS supplier could share warehouse spacing at the DC of the retailer. Such that the rented space at the DC can optimally be used with fluctuations in demand. Under FGP vendor collaborations are more limited, vendors could share a central warehouse where the retailers pick up their orders. In FGP there are more opportunities for retailers to collaborate, they could for example share vehicle routings (Le Blanc et al., 2007).
Drivers, barriers and facilitators
3.3.
responsible for the logistics and inventory of the products at the retailers DC. This vendor can be the supplier, or the third party who manages the logistics of the supplier. So for horizontal collaborative initiatives in VMI the perspective of the supplier is very important. A study of Nyaga et al. (2010) examined the difference in the perspectives of the suppliers and buyers on collaborative relationships on a vertical collaboration level. This research has shown that, to a great extent, similarities between buyers and suppliers perspectives on collaborative relationships. But it has shown that there were some important differences. The perspectives of suppliers could, for a large extent, be similar to the perspective of LSPs (some of them are shown in Table 3.1). For example the integration of information is an important facilitator for all parties in horizontal collaborative initiatives. However, penetrating new markets in logistics is not really a driver for fresh food suppliers as it is for LSPs (Cruijssen et al., 2007a). These are just some suggestions. In the literature review (Section 4) possible drivers, barriers and facilitators are collected and categorized.
Drivers Barriers Facilitators
Cost reduction Difficulty in finding partners
with whom to cooperate
Integration of information
Serving larger clients Risk of losing clientele to
competitors/partners Collaborative, planning-‐based systems
Protecting market share Difficulty in establishing fair
allocation of benefits Comparable partners, compatibility, strategic fit
Faster speed to market Unequal bargaining differences Sharing of performance data
Complementary Goods and services
Loss of control Market based systems
4. Literature review
In this section the drivers, barriers and facilitators cited in the literature on horizontal collaborative initiatives are documented. Most drivers, barriers and facilitators mentioned in the literature are focused on LSPs. The drivers, barriers and facilitators that could be applicable for suppliers, have been documented and categorized. The specific results of the literature review can be found in Appendix IV.
Drivers
4.1.1.
Corporate Social Responsibility (CSR)
With the growing consensus of consumers for sustainability, CSR has become of influence on the decision of vendors. Organizations see it as their social responsibility to reduce their CO2 emission. This could be achieved by combining transport with other suppliers (e.g. Hingley et al., 2011, Leitner et al., 2011). Next to CO2 reduction, combining truckloads could eventually lead to fewer trucks on the road (Le Blanc et al., 2006). Both C02 reduction and fewer trucks can be achieved by using larger vehicles (Lozano et al., 2013).
Cost of executing logistic process
Most often the biggest driver for all decisions in an organization are the costs. Transportation costs are a large part of the costs of suppliers, and next to that energy prices have been rising continuously last decade (Hingley et al., 2011). By combining truckloads, transportation costs can be shared, and per organization this will mean that the total amount of transportation costs can be reduced (e.g. Pérez-‐Bernabeu et al., 2014, Pomponi et al., 2015). This could have a positive influence on the product price. Products may be offered at a lower price, making their product more attractive for retailers (Cruijssen et al., 2007a). Vendors also have the opportunity to share warehouse spacing, which could decrease the costs of renting overcapacity of DC warehouse spacing due to demand variability.
Sharing logistic expertise and investments
Horizontal collaborations go further than just combining truckloads; they can also be of another level. Vendors all have their own logistic function, meaning that they could have different expertise and knowledge, which could be complementary for other vendors (Cruijssen et al., 2007a, Leitner et al., 2011, X.Xu, 2013). Besides sharing the knowledge and expertise they already have, they could also share the cost of new purchases and R&D projects (Cruijssen et al., 2007a, X.Xu, 2013).
Logistic performance
Next to costs, one of the main drivers for collaborating is that vendors want to optimize their logistic function. Often costs and logistic performance walk hand in hand. Vendors can more efficiently supply DCs by combining truckloads (Hingley et al., 2011), in this way less inventory is needed at the DCs due to a higher frequency of deliveries per supplier (Pérez-‐Bernabeu et al., 2014, Pomponi et al., 2015). Eventually the total number of trips of the collaborating suppliers might be reduced, leading to a better service quality (X. Xu, 2013, Pérez-‐Bernabeu et al., 2014, Pomponi et al., 2015). An important factor in transportation is backhauling, which could be positively influenced by horizontal initiatives, so that fewer trucks arrive empty at the supplier (Juan et al., 2014).
Optimizing vertical collaboration
As mentioned earlier, horizontal initiatives often go in combination with vertical initiatives. This combination is known as lateral collaboration (Soosay et al., 2008). Being able to show that you collaborate with other vendors to optimize the logistic function of the organization, gives a positive signal towards LSPs and retailers (Hingley et al., 2011). As mentioned previously, it enhances service quality. Besides the positive signals towards the partners in the supply chain, one could also think about the saying: “two is better than one”. Collaborating suppliers enlarge their bargaining power towards others (X.Xu, 2013).
Environmental legislation
Barriers
4.1.2.
Trust
Trust is often mentioned as one of the biggest obstacles in collaborations. Even for vertical initiatives, trust can be an issue. In horizontal collaborations the lack of trust can be an even bigger obstacle, since next to suppliers being colleagues, they can also be competitors (X. Xu, 2013, Pomponi et al., 2015). Because of the lack of trust, suppliers have the fear of sharing sensitive information, which withholds suppliers to go further with a horizontal initiative (X. Xu, 2013).
Cost allocation
As for costs is one of the biggest drivers, costs can also be one of the main barriers. How should vendors determine the costs of the collaboration? How can vendors determine their savings?. Currently there is no specific model, which can be used for allocation of the costs or the distribution of savings (e.g. X. Xu, 2013, Pomponi et al., 2015). Next to that, vendors are not very open in sharing their costs and savings, causing conflicts among collaborating suppliers (X. Xu, 2013).
Coordination
Often suppliers themselves are not capable of coordinating their collaborative initiative, this asks for external coordination (Hingley et al., 2011). This coordination leads to extra costs, which need to be paid. Next to that, it is not always easy to find a reliable party, which can coordinate the horizontal initiative (Cruijssen et al., 2007a). The more vendors to enter the collaborative initiatives, the more complex the coordination becomes eventually leading to higher coordination costs (Leitner et al., 2011, Lozano et al., 2013).
Performance
Previous experiences with collaborative initiatives have shown that these initiatives do not necessarily lead to a higher utilization of the trucks (Leitner et al., 2011). In the drivers there have been mentioned that horizontal collaborations have a positive influence on backhauling, but Hingley et al. (2011) indicated that these are not necessarily positively affected by horizontal initiatives.
Partner
Vendors, which do have the interest to collaborate with other suppliers, might face other problems. It is not always easy to find a partner to collaborate with; it could be that there are no other suppliers nearby (Cruijssen et al., 2007a, X. Xu, 2013, Pomponi et al., 2015).
Competition
Competition is a large barrier for a great part of all vendors. Vendors could have the fear of losing their competitive advantage to their competitors, and eventually lose customers (Hingley et al., 2011). Suppliers have the fear of being used by other suppliers, and that they do not gain anything from collaboration (Pomponi et al., 2015). Especially small suppliers have the fear of having an unequal bargaining position, being overruled in the collaboration. (Cruijssen et al., 2007a)
ICT
All vendors have ICT systems; these systems will need to be changed so vendors can cooperate. But these changes in systems are not easy and implementing these changes causes high costs (Cruijssen et al., 2007a). There is also a distinction to what extend suppliers would like to combine their ICT functions. Vendors do not want to share all information, even if necessary for the ICT system (X.Xu, 2013, Pomponi et al., 2015).
Process control
Facilitators
4.1.3.
ICT information support
For a collaborative initiative to work between suppliers ICT should in a way be able to communicate with each other and data should be shared between these vendors (Cruijssen et al., 2007a, X.Xu, 2013, Pomponi et al., 2015). For combining truckloads, data on truckloads of the organization need to be shared, to plan transportation (Pomponi et al., 2015).
External coordination
External organizations can coordinate the horizontal collaborative initiatives when organizations do not want the issue (or have the capabilities) of changing their ICT systems and their whole logistic process. This coordinator could be in the supply chain of both suppliers or an external party. In this case it is a third-‐party who coordinates the logistic process (Hingley et al., 2011, X.Xu, 2013). There can also be a party, which is not within the supply chain, referred to as fourth party (4PL) These are specialized in coordinating supply chains and ensure constant overall satisfaction and improvement of the logistic functions of the collaborating suppliers/LSPs and retailers (Hingley et al., 2011, Leitner et al., 2011, X.Xu, 2013).
Expectations
The biggest pillar for every collaboration is trust. Mutual trust is needed to start a healthy relation with another organization. This is the case in horizontal collaborative initiatives, but in fact in every collaboration or relation, trust is of great importance (Pérez-‐Bernabeu et al., 2014, Pomponi et al., 2015). Trust is needed in the capabilities of both vendors, but also to ensure that vendors share all needed data and that this data is kept confidential (Leitner et al., 2011). Mutual trust in horizontal logistic initiatives can for example be achieved when vendors have shared interest and commitment in their logistic activities (Cruijssen et al., 2007a).
Similarities
Without available suppliers to collaborate with, no horizontal initiative can be initiated. But when there are suppliers nearby, there are possibilities to collaborate (Leitner et al., 2011). These suppliers should have the same customers (retailers) and when they make use of LSPs, it would be recommended that they also use the same LSP (Cruijssen et al., 2007a). For suppliers for whom it is hard to find a partner to collaborate with, there are electronic matchmakers for vendors to find partners, which have the interest to collaborate (X. Xu, 2013).
Agreements
5. Results
In this chapter the results of the interviews are presented. Furthermore, additional drivers, barriers and facilitators that came to the attention during the interviews have been documented. In section 5.1 the logistic process of the interviewed vendors is described. Section 5.2 defines the perspective of the suppliers on the driver categories, in section 5.3 the barrier categories are discussed and in section 5.4 the facilitator categories. In Appendix V, the coding of the interviews can be found.
Logistic process
5.1.
During this research 5 fresh food suppliers of the retailer have been interviewed. They all had a different logistic process, which brought different kinds of perspectives on horizontal collaborative initiatives. Table 5.1 defines the current logistic functions of the interviewed suppliers.
Supplier Dedicated to
retailer?
Collaboration
with retailer Collaboration with other retailers
Horizontal
initiatives? LSP? Own warehouse?
A Yes VMI +CPFR N.A. No Yes (ATN
+local)
No
B Yes VMI + CPFR N.A. Yes Yes
(Speksnijder, part of ATN)
Yes
C No RMI +CPFR CPFR No Yes (ATN +
local) No
D No FGP + CPFR CPFR No Yes (ATN +
own trucks)
No
E No RMI + CPFR CPFR No Yes (local) Yes
Table 5.1 Logistic function suppliers
Supplier A
Supplier A is a dedicated supplier of fast moving products to the Dutch retailer in the Netherlands. They have a VMI environment, where their own local LSP does the transportation to the regional DCs of the retailer, and ATN (will be discussed later) for transport to the nationwide DC. The local LSP is used to be more flexible. For their own inventory they rent an expedition space outside their production plant. A horizontal collaborative initiative has been considered, but after a while they have dropped out of the initiating discussion, because they did not want to lose control of their current logistic process.
Supplier B:
VMI collaborative initiative with the retailer. This supplier performs a somewhat horizontal coordinating function for some suppliers of the retailer in Europe. They combine the loads of those factories and their own factories in Europe at their warehouse in Belgium and then transport them to the Netherlands. They have an LSP in the Netherlands, which drives from Brussels to their own consolidation center, where the loads are cross-‐docked and moved further to the DCs.
Supplier C:
Supplier C is a supplier of slow moving products and is not dedicated to the Dutch retailer. They have a private label for the retailer, and they have a more exclusive product for the other retailers. The retailer orders the products and the transportation is planned by the supplier. This is the same with the other retailers. When loads are over 20 pallets they make use of a local LSP because they are cheaper then. When the number of pallets is below 20, transportation is fulfilled by ATN for the retailer. Transportation for other retailers is often done by another LSP, which cross-‐docks the products at their warehouse, where it is sent to the DCs. Everything they produce, is produced for the trucks, and is immediately loaded in the trucks when they arrive.
Supplier D:
Supplier D is a supplier of slow moving products and delivers beside the Dutch retailer also to other smaller retailers. The inventory and transportation is managed by the retailer (FGP). The transportation of the retailer is handled by ATN. ATN takes the loads to their consolidation center, where it is cross-‐docked for the DCs of the retailer. For the other bigger retailers this is the same; instead another LSP fulfills this function. For the smaller retailers they have 2 normal trucks and 2 small trucks. These trucks are loaded, and then the trucks drive along the small retailers. The same as with supplier C, supplier D has no warehouse of its own. They produce for the trucks that are coming.
Supplier E:
Supplier E has a very simple logistic function; they just produce what is ordered (RMI). They produce seasonal products, which are normally slow moving products but they can have high peaks. They have a local LSP, which they call in the morning, and that comes in the afternoon to transport the goods. This LSP cross-‐docks the loads at their warehouse, from where it is transported to the DCs. They deliver to multiple retailers, and the logistic process is the same for all of them.
